Venture capitalist on Epic's opening up

EHR giant Epic Systems recently announced plans to open an app-type store. Steve Krupa, senior managing director of Psilos Group, a healthcare-focused venture capital firm and one with a portfolio company--PatientSafe Solutions--that will directly benefit from the Epic platform, spoke to Clinical Innovation + Technology about this development.

Epic, which until now has been mostly a closed system, will allow developers worldwide to write healthcare applications that will bring many more people into the Epic universe, including clinicians and patients. If Epic’s competitors follow suit, we just might see the promise of innovation and easy accessibility of myriad healthcare services come to pass.

Q: How significant is this Epic announcement?

SK: Epic has had other announcements in the past that suggested they were opening up but the words didn’t match the reality. We’ll know more as time goes on but I think this is the beginning of their recognition that they can’t control every piece of software that interfaces to their EHR. There too much demand. It’s likely that if they focus their attention on making their EHR work very effectively, they’ll have a terrific business for a longer period of time.

Q: Do you think the introduction of the Apple smartwatch plays any role?

SK: We’re at the beginning of healthcare moving away from paper to automation. It’s really so early. The Apple announcement is something people are just starting to digest. There are a lot of users out there that want to provide their data to help the research. This is the beginning of a revolution. I’m hoping that key core platforms—one of which is the EHR, the other is payer-related platforms—will make the data accessibility question go away so that innovators can focus on building apps that can drive better, less expensive healthcare.

Q: Why do you think Epic is doing this now?

SK: If I were speculating, I think Epic has benefited significantly from government regulation around the deployment of EHRs. They put in a bid for the $11 billion Department of Veterans Affair EHR contract so they clearly want to do more business with the government. One of tenets of EHRs would be to be compatible with other apps and innovations. I think their intention is to live up to that promise. Whether Apple forced their hand, I don’t know.

Plenty of companies are trying to pull data out of Epic and turn it into actionable information but there’s not a system that accepts interactivity with it openly. To the extent that we move in that direction, that’s critical. Apple doesn’t have EHRs in hospitals. Their market power is limited. What Apple would love to see happen is hospitals begin to deploy smart mobile networks. That’s the future. This will force Epic’s competitors to open up as well. Apple does great things in terms of moving the needle incrementally.

Q: What do you think it will take to drive greater interoperability?

SK: I think the customers need to demand it. If the government is going to be a large Epic customer then they should demand the benefits of modern technology and the benefits of modern technology is best-of-breed apps. Most industries are moving toward being able to implement that and get the best of breed in terms of technologies. We get it on our phones as consumers. To me the HITECH Act and EHRs--that controversy has come and gone. Investments are being made by hospitals and systems are being put in. Now it’s the customers who should be demanding the best out of these companies. No company is capable of meeting all the demands of their customers everywhere. But if their system is open and allows customers to buy and utilize best-of-breed technologies with their system then they’re adding an enormous amount of value to their customers.

Q: What do you think healthcare can learn from other industries in this area?

SK: If you were working at a hedge fund and wanted to invest in a company, 25 years ago you’d pull out the value line report and read it. Why are doctors going to the filing cabinet and pulling out a file when treating you for a health condition? If you thought about that in the context of investing, as an investor I want to gather information about what I might want to invest in and evaluate it. There are all sorts of resources to offer advice and guidance. Independent people have built software products to help me do my job.

It’s about time we do this in healthcare but it’s not that way at all. Five months ago, my wife and I had a baby in one of the best hospitals in New York City. There was no interoperability going on. They were coming in with laptops, computers on wheels, large mobile devices and walkie talkies but none of that stuff was working together. They were not designed to work together. For a hospital CIO, the cost of making all that stuff interoperable is inefficient.

That is not the case in other industries. Manufacturing facilities have equipment that works in concert together in an automated way.

Q: How do you see this playing out over the next couple of years?

SK: The company I have invested in, PatientSafe Solutions, involves a very valuable mobile network in hospitals doing bar coded drug administration. Nurses have a smartphone and are able to use it to more effectively administer care at the bedside. That’s an example of an app that would work very well in an open environment.

As a venture capitalist, when companies come in talking about building apps for hospitals, the deterrent is the difficulty of getting them interfaced with Epic. The first question a hospital exec will ask is ‘Will this work with my EHR?’ This is really going to truly unlock an era of openness to these systems. This is exciting for me and ultimately will be exciting for the healthcare system. There is a straight line of potentially excellent investment opportunities and excellent value that can be delivered to healthcare.

Q: How do you decide which technologies to invest in?

SK: There is not a shortage of technologies out there and programmers that want to build systems that will help all of the various specialties and departments within a hospital and physicians outside of the hospital to help them better serve their patients and perform more efficiently and accurately at higher quality. Certainly one area of interference is the lack of interoperability. If all of this turns out to be true in the way people would hope in the next 2-3 years, there will be very few deals we would be apprehensive about. I see an adoption curve that makes sense as an investor.

Q: Is there a poor outcome for this?

SK: Up until this announcement, I think it’s been pretty well understood that interfacing with Epic is a one-off experience. People aren’t building games for people to play. They’re building real, intense apps that deal with how to take care of patients better and deliver information to the operating room. These are serious things. This changes the landscape for the better. If that turns out not to be true, customers are going to have to work harder to get Epic interfacing. The worst-case scenario is it doesn’t live up to the hype. These are big investments people have made in EHRs. I would think they’re under pressure to deliver value for these investments.

Technically, Epic doesn’t have to do this but not doing it doesn’t work well for them. They don’t want to be the customers’ enemy. EHRs’ core value, once they’re up and running, is mostly on the revenue cycle management. side today. There’s a lot going on that Epic needs to address. They need to automate the way that bills are developed and submitted and the reimbursement arrangements for providers, in terms of how they are paid by the government and private insurance companies are going to go through a radical cycle of change. We’re moving away from fee-for-service medicine very quickly. It’s very possible that Epic has concluded that there is so much they need to deliver to clients on core EHRs that they realize ancillary features can be built by others. There is no reason they can’t figure out a revenue model that works for them to integrate just like Apple.